Globalization

Globalization is the process of removing trade barriers around the world, so that everybody lives in the same unconstrained market. The arguments in favor of globalization are clear: trade barriers make the market less efficient. If I have to pay a tariff to sell my widgets in Switzerland, then my Swiss customers have to pay extra for widgets. If my government pays me a subsidy to build and sell widgets, then my Swiss competitors may not be able to match me in price even if they would otherwise be cheaper. Since in general everybody is better off when widgets are being made by the people who can make the most efficiently and sell them cheapest, it’s better to remove trade barriers and subsidies. One of the reasons the U.S. is an economic powerhouse is that trade barriers between states are banned by the constitution, so the U.S. forms a single large market, encouraging the creation of efficient companies.

The arguments against globalization are often framed in terms of people losing jobs. If the cost of living in the U.S. is much higher than in Vietnam, then wages in the U.S. will be much higher, and, all else being equal, it will be cheaper to build widgets in Vietnam. Of course all else is not equal, but in fact manufacturing jobs are leaving the U.S. for cheaper shores. Similar arguments apply for any requirements which exist in one country but not in another, such as environmental standards. Stricter environmental standards impose a greater cost on doing business, so factories tend to migrate to places with weaker standards, which hurts all of us.

What I find most interesting about globalization is that people who support it are essentially arguing strongly for the free movement of goods and capital. They want to let people invest anywhere and sell anywhere. Framed in that way, it is obvious that what is missing is the argument for the free movement of people. If I live in New York and find out that there are more jobs in Los Angeles, it’s reasonable for me to move there and get one. But if I find out that there are more jobs in Vietnam, I can’t move there. Not only do I not know the language, I can’t even get a work permit. So globalization as usually described helps investors by letting them invest anywhere, and it helps manufacturers by letting them manufacture and sell anywhere, but it doesn’t help workers, who are by and large stuck where they are. That is, workers are helped because they can buy better products, but they are hurt because all the available jobs may move to another country, and they can’t follow.

Of course there are many exceptions: people who can work over the Internet can live anywhere, and some jobs can not move. Still, I think that free migration is a big gap in the usual arguments for globalization. Since the political reality is that free migration is not going to happen, I think that people who argue in favor of globalization need to explain why that is not a serious problem.